SOUTH KOREA: President Lee: Fiscal Stimulus To Boost Growth, Kospi Undervalued
South Korean President Lee has marked his first 100 days in office with a press conference, where a wide range of issues have been discussed - fiscal stimulus to boost growth, the local property market, trade negotiations with the US, along with the outlook for the stock market.
- The President is clearly in favor of more fiscal stimulus. He noted now is the time to focus on growth and not worry about debt levels. Lee added the time is for fiscal policy to expand to boost growth even if it means higher national debt levels.
- Such comments are unlikely to surprise the market. The 2026 budget called for a 8.1% rise in government spending (from late August). The South Korean government 2/10s bond curve is also off recent highs, flatter back to +42bps. We have struggled to steepen beyond +50bps for this metric (although we are up firmly since the start of the year from around +10bps).
- Lee did state that some economic indicators are picking up.
- On the housing side, Lee stated: "*LEE: A FEW MEASURES ALONE CANNOT SOLVE HOUSING MARKET ISSUES" - BBG, suggesting more measures are likely to cool the housing market.
- On the equity market: "*LEE: I THINK KOSPI IS SIGNIFICANTLY UNDERVALUED" - BBG, while noting tax changes should designed to boost the market. He added *LEE: NO NEED TO STICK TO 1B WON THRESHOLD ON CAPITAL GAINS TAX LEE: WILL LEAVE IT TO PARLIAMENT FOR DISCUSSION ON STOCK TAX" - BBG.
- Speculation yesterday that proposed changes to the capital gains tax threshold would be scrapped aided Kospi sentiment. The Kospi is still up today, but off earlier highs, with Lee's comments not providing a clear outlook for proposed tax changes related to capital gains tax.
- On the US-South Korea trade deal - "*LEE: STILL HAVE ALOT MORE NEGOTIATIONS WITH US ON TARIFFS,*LEE: WON'T MAKE DECISION THAT RUN COUNTER TO NATIONAL INTERESTS" - BBG, along with "SOUTH KOREA'S LEE: IMMIGRATION RAID CAN BE DIRECTLY IMPACTING KOREAN INVESTMENTS IN U.S. - [RTRS]"
- South Korean officials will travel again to the US for trade talks. Earlier in the week, one area of concern was the pledge for South Korean investment flows into the US and how that might impact USD/KRW (it would bias it higher, which is not something the US authorities would like in the context of the trade balance).
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STIR: RBA Dated OIS Slightly Firmer Ahead Of Today’s RBA Decision
At the time of writing, RBA-dated OIS pricing is slightly firmer on the day across meetings ahead of today’s RBA Policy Decision.
- A 25bp rate cut this week is given a 97% probability, with a cumulative 59bps of easing priced by year-end (based on an effective cash rate of 3.84%).
Figure 1: RBA-Dated OIS – Current Vs. Yesterday
Source: Bloomberg Finance LP / MNI
JGBS: Treading Water Ahead Of Today's US CPI
At the Tokyo lunch break, JGB futures are weaker but off lows, -8 compared to the settlement levels.
- Cash US tsys are little changed in today's Asia-Pac session ahead of today's US CPI data.
- (Bloomberg) "Markets remain skeptical that the Bank of Japan will raise rates soon, even as inflation proves sticky. Economists pencil in one hike by year-end, but with the GDP deflator likely to exceed 3%, homegrown inflation is showing signs of entrenchment, adding to the urgency to tighten policy."
- Cash JGBs are showing a modest sell-off across benchmarks, led by the 4-year. The benchmark 10-year yield is 0.4bp higher at 1.495% versus the cycle high of 1.616%.
- Swap rates are little changed. Swap spreads are mixed.
CHINA PRESS: China Stock Market Hit New High This Year
The benchmark Shanghai Composite Index hit a new high this year, reaching an intra-day peak of 3,650 on Monday, China Securities Journal reported. The turnover in the A-share market exceeded CNY1.8 trillion, with over 4,100 stocks rising and over 80 of them hit the day limit, the newspaper said.
